The Role of Unemployment in the Rise in Alternative Work Arrangements

The share of U.S. workers in alternative work arrangements has increased substantially in recent decades. Micro longitudinal analyses show that unemployed workers are much more likely to transition into alternative work arrangements than other workers. Macro time-series evidence shows that weak labor market conditions lead to an increase in non-traditional work. But the estimated magnitudes imply that the Great Recession and high unemployment in the 2000s can account for only a modest part of the rise in alternative work. Secular factors associated with rising inequality and technological changes making it easier to contract out work appear to be the driving forces.

supervisory costs; a demographic shift toward an older workforce with older workers more likely to be self-employed; and a weak labor market leaving workers with little bargaining power and few options for traditional employment.
In this paper, we focus on the last explanation, the impact of weak labor markets and high joblessness. To do so, we examine the extent to which the experience of unemployment raises the likelihood that workers transition to an alternative work arrangement as opposed to a traditional employment relationship. Specifically, we link the February 2005 CPS CWS to the February 2004 CPS and link the October-November 2015 RAND-CWS to earlier waves of the ALP from February, March, and April of 2013. We find that workers who suffered a spell of unemployment are 5 to 12 percentage points more likely than observationally similar workers to be employed in an alternative work arrangement when surveyed one to 2.5 years later.
We uncover little evidence that cyclical forces --and the 2008-09 Great Recession in particular --played an important role in the growth of alternative work arrangements over the past few decades. In addition to the micro evidence on individual's unemployment histories, we find from aggregate time-series analyses that the rise in the share of workers with Schedule C income or employed by a temporary help agencies in recent decades is dominated by secular trends rather than cyclical factors. Our findings lend support for the view that secular forces, such as rising inequality and technological changes causing incentives for a fissuring of workplaces, are responsible for most of the increase in alternative work arrangements.

I. Data
Two longitudinal data sets on workers' unemployment histories and subsequent experience working in alternative work were created from the 2005 CWS and the 2015 RAND-CWS.
To create longitudinal data from the CPS CWS, we applied Rothstein's (2011)  Only a subset of individuals (those in rotation groups 5, 6, and 7) who participated in the 4 The unemployment rate in the linked CPS sample in February 2004 was 2.9 percent, substantially below the 6.1 percent official unemployment rate that month. The discrepancy arises because those who could be matched across CPS surveys had lower unemployment in February 2004 than those who could not be matched. The unemployment rate in the RAND-CWS sample in early 2013 was 6.2 percent also below the comparable BLS rate of 7.6 percent.
Workers who suffer a spell of unemployment are significantly more likely to be employed in alternative work a year later in all of the models in Table 1, and including more control variables increases the size of the coefficient on unemployment. The magnitude of the coefficient on unemployment in column (3) indicates that workers who become unemployed are 12 percentage points more likely to be employed in an alternative work arrangement a year later than are other workers who were not unemployed a year earlier.
If we estimate the logit model in column (3) using as the outcome variable, in turn, an indicator for each the four subcategories of alternative work, we find a positive and statistically significant effect of unemployment on subsequently being an independent contractor, on-call worker, or temporary help agency employee, but not for being hired by a contract firm.
Given the difficulties that many older workers encounter in regaining employment after being displaced from a job, we also estimated the models in Table 1 separately for workers age 40 and older and those less than 40 years old (see supplemental tables). We do not find evidence that a spell of unemployment was associated with a higher likelihood of being subsequently employed in alternative work for older workers, however.
Logit estimates for being in an alternative work arrangement in October-November 2015 using the matched RAND-CWS data are presented in Table 2. The effect of a spell of unemployment (2.5 years prior) on subsequent employment in an alternative work arrangement is statistically insignificant in the RAND-CWS data and smaller in magnitude than the corresponding estimate in the CPS-CWS data (for unemployment one year prior). Given the smaller sample size and large standard errors in the RAND-CWS, one cannot reject that the effects are equivalent in the two data sets. It is also possible that the effect of unemployment in the RAND-CWS sample is smaller because many unemployed workers who take alternative work may do so temporarily, and the longer time span between waves in the RAND-CWS sample may give unemployed workers more time to transition to traditional employment.
Even if we use the largest estimate of the effect of unemployment on the likelihood of being an alternative worker from the CPS-CWS in Table 1  Although the work-experience unemployment rate understates the fraction of workers who experienced a spell of unemployment over a period longer than a year, we conclude that it is unlikely that the decadal differences in the incidence of unemployment can explain much of the rise in alternative work absent large spillover effects.

III. Time-Series Evidence
We next examine U.S. aggregate annual time series data on the evolution of two indicators of alternative work arrangements -Schedule C filers and temporary help agency

IV. Conclusion
The share of the U.S. workforce in alternative work arrangements, especially selfemployment and contract work, has increased substantially in recent decades. Micro longitudinal analyses and macro time-series evidence show that weak labor market conditions and a high share of workers experiencing unemployment are associated with an increase in nontraditional work. But the magnitude of the impact of cyclical labor market conditions is not large enough to explain most of the shift from traditional to alternative work arrangements. Changes in the demographic composition of the workforce also explain only a modest rise in alternative work (Katz and Krueger 2016). The increase in alternative work arrangements from around 10 percent of the workforce in the 1990s to 16 percent today is probably largely driven by secular factors associated with rising inequality and technological changes making it easier to standardize and contract out work. A surge in the contracting out of formerly in-house work and the increased use of temporary help agencies are indicators of a broader fissuring of U.S.
workplaces, a rise in the segregation of similarly skilled workers across employers, and an increase in the positive assortative matching of high-wage workers and high-wage employers (Song, et al. 2016). Increases in demand for flexible work arrangements and work-life balance also may have contributed to the growth in alternative work arrangements.